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Why Cash Only Hurts Your Credit Score

Why Cash Only Hurts Your Credit Score

As we’ve mentioned, there’s been an increase in cash only sales of homes. Some people believe in cash only and that using credit is a bad idea. But following that plan could hurt you in the long run.

Your credit score is partially based on your ability to manage credit. That means people want to see you using credit available to you responsibly. It’s a good strategy to use your credit cards regularly and pay off the balance every month.

But, you’re saying, I never intend to get a credit card, auto loan, student loans, a mortgage or a home equity line of credit.

Additionally, the government has strict guidelines for cash only purchases above $10,000. A 1970 anti-money-laundering law known as the Bank Secrecy Act spells out the rules for large cash withdrawals. Banks are required to report any transaction involving at least $10,000 in cash. That includes not only withdrawals but also deposits, currency exchanges and the purchase of traveler’s checks. The law also requires banks to check identification on any transaction that would trigger a report.

And banks aren’t the only ones. If you buy a car with cash, the dealer is required to notify the government as well possibly triggering an audit.

A credit card will provide you with better protection of your purchases than a debit card. (We’re assuming here that you put your cash in a bank and have an ATM/Debit card. It’s generally a bad idea to keep cash hidden in mattresses. Although these New York students returned the $40,000 they found in a thrift store couch, you probably don’t want to count on someone returning the cash.)

So don’t be afraid of building up a credit history. Just keep to your budget and pay it off promptly, and you’ll be in great shape for anything.

And can you imagine what your credit score would be like if you took out a mortgage and paid it off right away?